/ world today news/ A weakened currency, worried investors, a blow to tourism in the height of the season: the failed coup attempt on July 15 will leave its mark on the Turkish economy despite the authorities’ efforts to play down its impact.
Since July 15, the television has continuously shown footage of tanks in the streets, of fighter jets flying over Ankara and Istanbul, of destroyed buildings, of handcuffed suspects being dragged before the courts by the military, of vengeful mobs driven by militant leaders.
These events, as shocking as they are unexpected, will positively deter foreign investors, says William Jackson, a specialist in fast-growing economies at the London-based research center Capital Economics. As for companies already present in Turkey, it seems unlikely that they will expand their activities.
The immediate losses, expressed in a drop in tourist visits and delayed investment, are likely to slow growth in 2016 and 2017, warned the Institute of International Finance (IFF), a Washington-based lobby grouping 500 banking institutions. If the situation worsens, the consequences may be more serious and threaten financial stability, IFF warns.
In 2015, Turkey recorded a growth of 4% – a level that the International Monetary Fund predicted for this year as well.
The standard of living of the population has steadily improved since the early 2000s, a period that corresponds to the rise to power of Recep Erdogan. The public debt is only one third of the country’s GDP.
However, Turkey has structural weaknesses that may deepen after the failed coup: annual inflation of nearly 7%, weak private saving, dependence on foreign investment, a banking sector weakened by a debt-driven economy.
Not counting tourism, which has suffered severely from the recent attacks: before the coup, experts estimated that the political situation and terrorist risks could cost this industry, which employs 8% of the active population, $8 billion. In May, the number of tourists visiting Turkey dropped by a third.
Will the effects of the coup be offset by the return of the Russians? In October 2015, Moscow imposed sanctions after one of its bombers was shot down by a Turkish fighter jet. The Russians, together with the Germans and the British, are the most numerous visitors to the country. However, tourism is not the only concern. If capital flees, the pound will fall and the economy will have to adjust by cutting imports, warns William Jackson.
In the days after the coup, the lira lost 6% of its value against the dollar. Since April, the decline is 10%. Currency depreciation has direct consequences for businesses that are already heavily indebted in foreign currency.
In Turkey, if the currency falls too much, the situation becomes particularly painful and it can lead to a depression, said Michael Harris, head of research at Renaissance Capital, an investment bank specializing in emerging markets.
French trade credit insurer Coface revealed that the country’s foreign exchange reserves could be insufficient in the event of a sudden withdrawal of capital.
Therefore, there are a number of factors that could lead to a sharp upturn in the economy in the coming years with the potential for a recession – William Jackson warned.
The authorities are making efforts to calm down. According to the Deputy Prime Minister in charge of finance, Mehmet Simsek, the impact of the coup attempt will be short-lived and the consequences relatively minor.
Last week, the pro-government media opened its pages to industrialists expressing their gratitude to President Erdogan and to investors explaining that they want to retain or even increase their investment in the country.
According to President Erdogan, it doesn’t matter that Standard & Poor’s downgraded the country’s debt rating from BB+ to BB, a decision he says is purely political. The head of state even attacked the rating agency, saying to the deputies: What concerns you, who are you, what do you stand for?/AFP
London / Great Britain
#AFP #Clouds #gather #Turkish #economy #coup
